Friday, October 16, 2015

Brazil's Recession Brings Suffering to Millions, as Recessions Always Do

I’ve been following the unfolding crisis in Brazil, where economic problems are leading to national misery. This is a really sad and grim time for most Brazilians.

I always try to view these economic crashes through the dimension of human suffering — the suffering of individuals and families. The situation in Brazil is just awful, and terribly painful for millions of its citizens.

And this suffering is going on all around the world right now. It's how political instability begins.

Brazil’s unemployment rate has risen to 7.6 percent from a record-low 4.3 percent at the end of 2014. That’s a 76 percent increase in less than a year, which is enormous.

Latin America’s largest economy is now in recession — already the worst since 1990 — and the situation is expected to worsen.

The spike in unemployment is particularly troubling since the country based its growth model in recent years on a credit-fueled boom in consumer spending. But now millions of Brazilians may be unable to repay their loans for houses and cars.

Over the past decade, Brazil's banks engaged in a massive credit expansion that enabled some 40 million Brazilians to rise out of poverty and into the middle class. Total loans in the banking sector climbed five-fold over that time to 3.1 trillion reais. Family household indebtedness, as a percent of annual income, jumped to 46 percent from 20 percent.

The following is summary of the country's economic malaise:

Brazil officially entered recession four months ago. Its currency, the real, has fallen more than any other major currency in the world this year; annual inflation has soared to almost 10 percent; the budget deficit has swelled to the widest in at least two decades; and the government’s credit rating was cut to junk by Standard & Poor’s.

Last week, analysts at Itau Unibanco Holding predicted the economy will shrink 3 percent this year and unemployment will top 10 percent by 2016.

This means Brazil’s economic woes are expected to worsen over the next year, and with that there will be an increase in human suffering.

Brazil is a major exporter of commodities, and the slowdown in China and the rest of the global economy means that fewer of its commodities are being bought by other nations. This has crushed exports and hurt the overall economy.

Yet, Brazil does not exist in isolation. As the largest economy in Latin America, its pain and suffering will likely be felt more broadly, throughout the Latin world. Economic crashes often have a domino affect.

As I said earlier, this isn’t just about numbers; it’s about human lives. It’s about dashed hopes and dreams. It's about the suffering of millions of people who will lose their jobs and houses, and often wonder where they will find their next meal.

That’s especially difficult for children, who have no idea why any of this is happening.

Brazil is not unique. A number of countries around the world are confronting economic recession right now, including our northern neighbor, Canada, as well as Russia, Japan, and Greece — which is actually in a full blown depression.

Recessions are not merely things that give economists and analysts something to talk about. They are crises that negatively impact the lives of millions of ordinary, everyday working people, whose standard of living usually declines while their suffering typically increases.

That’s the stuff I always keep in mind.

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